Method of transformational bidding with rebates and discounts

ABSTRACT

A method of transforming bidding with rebates and discounts in an electronic auction using a system and machine readable medium, the method including receiving a first bid from a first bidder and a second bid from a second bidder, wherein at least one of a rebate and discount is offered with at least one of the first and second bids, assigning a first value and a first unit of measurement for the first bid and a second value and second unit of measurement for the second bid, and transforming the first and second values to third and fourth values, respectively, having a standard unit of measurement. The system has a database for receiving and storing bid information, including rebates and discounts, from at least one bidder and software for transforming bid information into values having a standard unit of measure. The machine readable medium has a first machine readable code that receives bid information from a bidder, a second machine readable code that receives at least one of a rebate and discount from the bidder, a third machine readable code that generates a transformed bid using the bid information and the at least one of the rebate and discount, and a fourth readable code that transmits the transformed bid information to an auction server to generate a relative comparison of bids on a common competitive basis.

REFERENCE TO RELATED APPLICATIONS

This application is a continuation-in-part of copending U.S. patentapplication Ser. No. 09/282,157, entitled “Method and System forConducting Electronic Auctions with Multi-Parameter Price EqualizationBidding,” filed on Mar. 31, 1999 in the name of Sam E. Kinney, Jr.,Vincent F. Rago, Glen T. Meakem, Robert G. Stevens, David J. Becker,Anthony F. Bernard, William D. Rupp, Daniel C. Heckmann, Julia L.Rickert, Shane M. Tulloch, Jennifer L. Riddle, Nikki A. Sikes, and JohnP. Levis, III, assigned to the assignee of the present application,FreeMarkets, Inc. The entirety of that earlier filed, co-pending patentapplication is hereby expressly incorporated herein by reference.

FIELD OF THE INVENTION

The invention relates generally to conducting online electronicauctions, and in particular, to business-to-business auctions withrebates and discounts.

BACKGROUND OF THE INVENTION Procurement Models

It is believed that procurement of goods and services has traditionallyinvolved high transaction costs. The cost of finding and qualifyingpotential bidders has been particularly high. The advent of electroniccommerce has introduced new methods of procurement that lower some ofthe transaction costs associated with procurement. Electronicprocurement, and in particular business-to-business electronicprocurement, matches buyers and suppliers and facilitates transactionsthat take place on networked processors.

At least three models of electronic procurement have been developed:catalog, buyer-bidding auctions, and seller-bidding auctions. The“catalog” model was an early form of online electronic procurement.Initially, electronic catalogs were developed primarily by sellers,typically suppliers, to help customers obtain information aboutproducts, and order supplies electronically. Those first electroniccatalogs were typically single-source; i.e. they only allowed customersto obtain information and products from that supplier.

Although the first electronic catalogs reduced the information searchcost associated with procurement, it is believed that customers weredisadvantageously “locked in” to one supplier at each electroniccatalog. Customers were thus unable to compare a number of competingproducts in a single catalog. Therefore, certain suppliers withsingle-source catalogs began including competitors' products in theirsystems. The inclusion of competing products in electronic catalogsreduced procurement information search costs even further. By offeringcompeting products, electronic catalogs became “electronic markets.”

Electronic commerce using the electronic catalog model typicallyinvolves one buyer and one seller at a time. When many buyers competefor the right to buy from one seller, a buyer-bidding auction model, orforward auction, may be created. Catalog and buyer-bidding auctionmodels, however, may have limitations and may not work well in everysituation.

Supplier-bidding auctions for products and services defined by a buyerhave been developed. In a supplier-bidding auction, bid prices may starthigh and move downward in reverse-auction format as suppliers interactto establish a closing price. The auction marketplace is one-sided,i.e., one buyer and many potential suppliers. Typically, the productsbeing purchased are components or materials. “Components” typically meanfabricated tangible pieces or parts that become part of assemblies ofdurable products. Example components include gears, bearings, applianceshelves, or door handles. “Materials” typically mean bulk quantities ofraw materials that are further transformed into product. Examplematerials include corn syrup or sheet steel.

Industrial buyers may not purchase one component at a time. Rather, theymay purchase whole families of similar components. These items maytherefore be grouped into a single lot. Suppliers in industrial auctionsmay provide unit price quotes for all line items in a lot.

Auction Process

Traditional online auctions focus on price as the sole variable uponwhich the online competition is based. It is believed that price is thesole bidding parameter that is provided by the bidders and hence is thesole parameter upon which a selection process is made. Relativevaluations between different bid prices may be quick and intuitive.

In many types of business transactions, price may not be the soleparameter upon which a decision is made. For example, in thenegotiations for a supply contract, a buyer may compare variousproposals not only on the basis of price but also on the basis of thenon-price characteristics of non-standard goods, the location of thesupplier, the reputation of the supplier, etc. In a typicalbusiness-to-business situation, a plurality of parameters may beconsidered in combination with the supplier's price proposal.

In these situations, purchasers may negotiate with each supplierindependently because multi-parameter bids may not be readily compared.Actual comparisons by the purchaser may be based on a combination ofsubjective and objective weighting functions. Bidders may not haveaccess to information on the buyer-defined weighting functions. At most,bidders may be selectively informed (at their disadvantage) of aspectsof other competing bids. The limited communication of informationbetween bidders may limit the potential of true competition between thebidders. The absence of competition lowers the likelihood that thebidders may approach their true walk-away bid. Further, the manualweighting process may be time consuming and subject to inconsistencyfrom one application to the next.

SUMMARY OF THE INVENTION

The present invention provides a method of conducting an auction usingtransformational bidding with rebates and discounts. The method includesreceiving a first bid from a first bidder and a second bid from a secondbidder, assigning a first value and a first unit of measurement for thefirst bid and a second value and second unit of measurement for thesecond bid, and transforming the first and second values to third andfourth values, respectively, having a standard unit of measurement. Atleast one of a rebate and discount is offered with at least one of thefirst and second bids,

A system for conducting an auction using transformational bidding withrebates and discounts is also disclosed. The system includes a databasefor receiving and storing bid information, including rebates anddiscounts, from at least one bidder and software for transforming bidinformation into values having a standard unit of measure.

The present invention also provides a machine readable medium thattransforms bids with rebates and discounts. The machine readable mediumincludes a first machine readable code that receives bid informationfrom a bidder, a second machine readable code that receives at least oneof a rebate and discount from the bidder, a third machine readable codethat generates a transformed bid using the bid information and the atleast one of the rebate and discount, and a fourth readable code thattransmits the transformed bid information to an auction server togenerate a relative comparison of bids on a common competitive basis.

BRIEF DESCRIPTION OF THE DRAWINGS

The accompanying drawings, wherein like reference numerals are employedto designate like parts or steps, are included to provide a furtherunderstanding of the invention, are incorporated in and constitute apart of this specification, and illustrate embodiments of the inventionthat together with the description serve to explain the principles ofthe invention.

In the drawings:

FIG. 1A is a flow diagram of a request for quotation in an auction;

FIG. 1B is a flow diagram of a bidding process in an auction;

FIG. 1C is a flow diagram of a contract award following an auction;

FIG. 2 is a schematic illustration of communications links between thecoordinator, the buyer, and the suppliers in an auction;

FIG. 3 is a schematic illustration of auction software and computershosting that software in an auction;

FIG. 4 is a schematic illustration of a bid transformation function;

FIGS. 5A-C are bid history charts based upon buyer and supplierviewpoints; and

FIG. 6 is a block flow diagram illustrating an embodiment of atransformation process of the present invention.

DETAILED DESCRIPTION

Reference will now be made in detail to the preferred embodiments of thepresent invention, examples of which are illustrated in the accompanyingdrawings. It is to be understood that the Figures and descriptions ofthe present invention included herein illustrate and describe elementsthat are of particular relevance to the present invention, whileeliminating, for purposes of clarity, other elements found in typicalauction systems and computer networks.

The present invention provides a method of conducting an auction usingtransformational bidding with rebates and discounts. The method includesreceiving a first bid from a first bidder and a second bid from a secondbidder, wherein at least one of a rebate and discount is offered with atleast one of the first and second bids, assigning a first value and afirst unit of measurement for the first bid and a second value andsecond unit of measurement for the second bid, and transforming thefirst and second values to third and fourth values, respectively, havinga standard unit of measurement. The method of the present invention canbe applied to both reverse and forward auctions. In addition, the methodis particularly applicable to online auctions where bidders submit bidsto an auction coordinator electronically during the auction process.

The present invention is designed to create a market of competition inbusiness transactions that traditionally could not take advantage ofnatural auction dynamics. Competition is fostered through thetransformation of multi-parameter bids into comparable units of measure.This transformation process enables an apples-to-apples comparison ofdisparate bids. The following description of the features of the presentinvention is presented in the context of downward-based onlineindustrial auctions. As would be appreciated by one of ordinary skill inthe relevant art, these inventive features could also be applied in thecontext of upward-based online auctions as well.

The basic process for a purchaser sponsored supplier-bidding or reverseauction, as conducted by the assignee of the present invention, isdescribed below with reference to FIG. 1. FIG. 1 illustrates thefunctional elements and entities involved in setting up and conducting atypical supplier-bidding auction. FIG. 1A illustrates the creation of anauctioning event, FIG. 1B illustrates the bidding during an auction, andFIG. 1C illustrates results after completion of a successful auction.

In the supplier-bidding reverse auction model, the product or service tobe purchased is preferably defined by the sponsor 10 of the auction, asshown in FIG. 1A. Alternatively, the buyer may set up all or some oftheir own bidding events and find their own suppliers. In that case, thesponsor 10 would run the events through the market operations center,which is a facility where auctions are monitored and participantsreceive assistance. In FIG. 1A, when the sponsor 10 decides to use theauctioning system of the present invention to procure products orservices, the sponsor 10 may provide information to an auctioncoordinator 20. That information may include information about incumbentsuppliers and historic prices paid for the products or services to beauctioned, for example. Preferably, the sponsor 10 also works with theauction coordinator 20 to define the products and services to bepurchased in the auction and, if desired, lot the products and servicesappropriately so that needed products and services can be procured usingoptimal auction dynamics. A specification may then be prepared for eachdesired product or service, and a Request for Quotation (“RFQ”)generated for the auction.

Next, the auction coordinator 20 may identify potential suppliers 30,preferably with input from the sponsor 10, and invite the potentialsuppliers 30 to participate in the upcoming auction. The suppliers 30that are selected to participate in the auction may become bidders 30and may be given access to the RFQ, typically through an RFQ in atangible form, such as on paper or in an electronic format.

As shown in FIG. 1B, during a typical auction, bids are made for lots.Bidders 30 may submit actual unit prices for all line items within alot, however, the competition in an auction is typically based on theaggregate value bid for all line items within a lot. The aggregate valuebid for a lot may, therefore, depend on the level and mix of line itembids and the quantity of goods or services that are offered for eachline item. Thus, bidders 30 submitting bids at the line item level mayactually be competing on the lot level. During the auction, the sponsor10 may typically monitor the bidding as it occurs. Bidders 30 may alsobe given market feedback during the auction so that they may bidcompetitively.

After the auction, the auction coordinator 20 may analyze the auctionresults with the sponsor 10. The sponsor 10 may conduct finalqualification of the low bidding supplier or suppliers 30. The sponsor10 may furthermore retain the right not to award business to a lowbidding supplier 30 based on final qualification or other businessconcerns. As shown in FIG. 1C, a supply contract may be drawn up andexecuted based on the results of the auction.

The auction may be conducted electronically between bidders 30 at theirrespective remote sites and the auction coordinator 20 at its site.Alternatively, instead of the auction coordinator 20 managing theauction at its site, the sponsor 10 may perform auction coordinatortasks at its site. Information may be conveyed between the coordinator20 and the bidders 30 via any known communications medium.

In one embodiment, the auction is conducted electronically betweenpotential suppliers 30 at their respective remote sites and thecoordinator 20 at its site. As shown in FIGS. 2 and 3, information maybe conveyed between the coordinator 20 and the suppliers 30 via acommunications medium such as a network service provider accessed by theparticipants through, for example, dial-up telephone connections usingmodems, or direct network connections. A computer software applicationmay be used to manage the auction. The software application has twocomponents: a client component 16 and a server component 23. The clientcomponent 16 may operate on a computer at the site of each of thepotential suppliers 30. Suppliers 30 make bids during the auction usingthe client component. The bids may be sent via the network serviceprovider to the site of the coordinator, where it is received by theserver component 23 of the software application. The client component 16may include software used to make a connection through telephone linesor the Internet to the server component 23. Bids may be submitted overthis connection and updates may be sent to the connected suppliers.

Bids may only be submitted using the client component 16 of theapplication—this ensures that buyers do not circumvent the biddingprocess, and that only invited suppliers participate in the bidding.Bidders may see their bids and bids placed by other suppliers for eachlot on the client component 16. When a bidder submits a bid, that bid issent to the server component 23 and evaluated to determine whether thebid is from an authorized bidder, and whether the bid has exceeded apre-determined maximum acceptable price. Bids placed by a supplier maybe broadcast to all connected bidders, thereby enabling everyparticipating bidder to see quickly the change in market conditions andbegin planning their competitive responses.

As noted, multi-parameter bids cannot be readily compared. Comparison ofmulti-parameter bids cannot be realized unless the relative impact (orweighting) of each of the individual bidding parameters is known.Intuition that is based on subjective assessments (or valuations) ofmultiple bid parameters cannot create an efficient market becausesubjective assessments are inconsistently applied and applied afterlengthy delays. Multi-parameter bid transformation enables true auctioncompetition because it forces a greater degree of objectivity into thevaluation process and is accomplished in real-time, allowing an auctiondynamic to occur. Comparison of bids can therefore be accomplished inaccordance with one or more comparative bid parameters.

A generic transformation mechanism is illustrated in FIG. 4. Asillustrated, bid transformation 500 represents a function (f) that isoperative on input variables (x) and (a₁ . . . a_(n)). Input variables(a₁ . . . a_(n)) represent non-comparative bid parameters, while inputvariable (x) represents a supplier comparative bid parameter (e.g.,price). The output of bid transformation 500 is the buyer comparativebid parameter (y).

In one embodiment, the bid transformation function (f) is a linear ornon-linear analytic function that is calculated in real-time. In anotherembodiment, the bid transformation function (f) is a linear ornon-linear function that is implemented via lookup tables. In yetanother embodiment, the transformation function is a combination of ananalytic linear function, analytic non-linear function, and table lookupfunction. The combination can be nested more than one layer deep.

In the generic description of the transformation process in FIG. 4, twotypes of comparative bid parameters exist. A buyer comparative bidparameter (y) refers to a parameter, resulting from the transformationprocess, upon which the buyer will compare competing bids. A suppliercomparative bid parameter (x), on the other hand, refers to an input tothe transformation function (f). As will be described in greater detailbelow, the supplier comparative bid parameter can be used by a supplierto compare competing bids in the supplier's context. In someapplications, the supplier comparative bid parameter is not used becauseall parties may be allowed to view the auction in the buyer's context.

As noted, non-comparative bid parameters are also used as inputs to thetransformation process. Unlike supplier comparative bid parameters,non-comparative bid parameters (e.g., non-price parameters) are notdirectly used to compare competing bids.

In this transformation framework, a supplier comparative bid parametervalue can be modified by the transformation process based uponnon-comparative bid parameter values to yield a buyer comparative bidparameter value. This scenario is discussed below in the context of thecoal market.

Alternatively, the transformation process can use multiplenon-comparative bid parameters to create a buyer comparative bidparameter. In this case, no supplier comparative bid parameters are usedto create supplier specific views. All parties view the competition inthe same context. An example of this scenario is net present value (NPV)bidding, where parameters specifying multi-year contracts are convertedinto a total NPV bid. The total NPV bid represents a sum of a series ofpayments over multiple contract years, which are discounted to a presentvalue using a predefined discount rate structure. NPV bidding isdescribed in co-pending U.S. application Ser. No. 09/282,156, entitled“Method and System for Conducting Electronic Auctions with Net PresentValue Bidding”, the disclosure of which is hereby expressly incorporatedin the present application (“the '156 application”).

Where a single buyer comparative bid parameter (e.g., price) is outputby the transformation process, competition between bids is based on therelative magnitude of the values of the buyer comparative bid parameterassociated with each of the bidders. This relative magnitude of thecomparative bid parameters can be illustrated on a one-dimensional plot.Where multiple buyer comparative bid parameters are output by thetransformation process, competition between bids can be compared using amultiple dimensional plot. In most cases, the use of a single buyercomparative bid parameter is advantageous because it provides thesimplest means for all parties to unambiguously determine a relativeranking of bids.

The concepts and features of the present invention are now illustratedin the context of a particular application within the coal market. Coalpurchase decisions are based on a variety of factors relating to thecharacteristics of the coal as well as the characteristics of thebuyer's needs and physical facilities. Characteristics of the coalinclude factors such as thermal content (BTU/lb), percentage sulfur,percentage ash, percentage water/moisture, hardness, etc. Relevantcharacteristics of the buyer include the time frame of requireddelivery, types of power generation units, etc.

During negotiations with multiple coal suppliers, each of the relevantfactors are evaluated in combination to determine the relativeattractiveness of each of the received bids. The evaluation process isoften a combination of subjective judgment, based on instinct andexperience, and hard quantitative analysis. As one can readilyappreciate, this evaluation process, although typical, is time consumingand adds great uncertainty for the suppliers.

Time delays are inherent since each supplier is negotiated withindependently. Suppliers face great uncertainty in this process becausethe internal subjective/quantitative metrics used by the buyer in theevaluation process are inconsistently applied. Negotiation tacticsdictate that the subjective/quantitative metrics used by the buyer arenot provided to the suppliers. This confidential information gives thebuyer leverage in altering the supplier's perception of the relativeattractiveness of the submitted bid. During the negotiation process,suppliers may be selectively informed (at their disadvantage) of aspectsof the decision making process.

Limited communication of information to the suppliers limits thepotential of true competition between the suppliers. The absence ofcompetition lowers the likelihood that the suppliers will approach theirbest offer.

The present invention creates true competition between suppliers in anauction system that enables comparison of truly disparate bids. Whiletraditional auctions focus on price as the sole variable of onlinecompetition, the present invention also factors in non-price variablesinto the bid evaluation and award process.

In the coal market example, the buyer may be ultimately interested inthe price per unit energy produced when the coal is processed throughtheir power generation unit. As noted, all coal is not created equal.The characteristics of the particular coal being offered by a supplierare unique to the supplier. Moreover, different power generation unitswill produce different quantities of energy from identical coal, due toengineering differences built into the power generation units.

Bids for coal are typically submitted on a price per physical measure ofweight or volume (e.g., $/ton) basis. The raw $/ton bids of theparticipating suppliers cannot be readily compared to each other due tothe underlying characteristics of the coal. A mechanism is thereforerequired to transform each of the bids into a context that enables anapples-to-apples comparison such that the buyer can choose the mostcompetitive bid. In the coal market example, the transformation processis designed to transform the $/ton bids for unique lots of coal intostandardized units of value to the buyer (e.g., price-per-unit-of-energybids such as ¢/Million BTU). After all of the $/ton bids are transformedinto ¢/Million BTU bids, the buyer can readily identify the marketleading bids.

It should be noted that the standardized units of value to the buyer caninclude various forms, such as a cost per unit of thermal content fromthe coal, a cost per unit of electrical energy output from a generationfacility burning the coal, the revenue from selling electrical energyoutput of a generation facility burning the coal, a measure of profitcontribution from selling electrical energy output of a generationfacility burning the coal, a measure of the net present value of adecision to accept the coal, wherein the decision is modeled to takeinto account the overall improvement in the buyer's economic condition,including revenue generated, costs avoided, risks mitigated, or assetvaluation improved.

The latter example is a function that implements the notion thataccepting a certain coal bid might have a portfolio effect on thebuyer's overall situation, or might change the economics of a certainproject. For example, a buyer might be considering whether to build anew power plant, and since coal is a high percentage of the life cyclecost of the power plant, changes in the price of coal offered to thebuyer might change the overall value of the plant.

The transformation function used in the coal market has been modeled asa linear transformation. In this linear transformation, a suppliers raw$/ton bid is modified using multiplicative and additive adjustments (orfactors) to yield a ¢/Million BTU bid. Each of the multiplicative andadditive factors are based upon characteristics (e.g., coalcharacteristics, delivery specifications, etc.) of a submitted bid.

It should be noted that the characteristics of a supplier's coal mighthave been identified prior to the start of the auction. In this case,multiplicative and additive factors are determined prior to the start ofthe auction and stored in memory by the server component. During theauction process, the multiplicative and additive factors are retrievedfrom memory and used to transform the raw $/ton bid into a ¢/Million BTUbid. In one embodiment, a multiplicative and/or additive factor isstored by the server component for each of the characteristics of thesupplier's coal. In an alternative embodiment, a single multiplicativefactor and a single additive factor, representative of the cumulativeeffect of the characteristics of the coal in the linear transformation,is stored.

In another scenario, the characteristics of a supplier's coal areprovided as part of a supplier's first submitted bid along with the raw$/ton bid to the server component. In this case, the characteristics ofthe supplier's coal (i.e., BTU/lb, % sulfur, % ash, % water, etc.) wouldbe fed by the server component into the transformation function todetermine, in real-time, the buyer comparative bid parameter that is theresult of the transformation function. The server component may storethe net result of the transformation function factors in memory forretrieval in the transformation of future bids by that supplier.

The transformation process in the coal market example can be genericallycharacterized by the transformation process illustrated in FIG. 4. Inthe coal market example, the output of the transformation process is the¢/Million BTU parameter. The ¢/Million BTU parameter represents thebasis upon which a buyer will compare the bids submitted by theparticipating suppliers. Accordingly, the ¢/Million BTU parameterrepresents a buyer comparative bid parameter.

In the coal example, the transformation process takes as inputs bothcomparative and non-comparative bid parameters. The non-comparative bidparameters represent the characteristics of the coal (i.e., BTU/lb, %sulfur, % ash, % water, delivery time, etc.) and the characteristics ofthe buyer. The $/ton price parameter represents a supplier comparativebid parameter. In combination, the comparative and non-comparative bidparameters are operated upon by the transformation function (f) to yieldthe buyer comparative bid parameter value in ¢/Million BTU.

At this point, it should be noted that the supplier comparative bidparameter ($/ton) is significant because it enables the supplier to viewa relative comparison of bids in the supplier's individual context. Thisfeature of the present invention will be described in greater detailbelow in the discussion of the detransformation and feedback parts ofthe auction process.

After each of the submitted bids have been transformed into the buyercomparative bid parameter ¢/Million BTU, an “apples-to-apples”comparison can be performed. The “apples-to-apples” comparison can beeffected in any of a variety of ways including the bid history chart ofFIG. 5A. The bid history chart of FIG. 5A illustrates a relative rankingof transformed received bids in ¢/Million BTU.

Having received a bid from a participating supplier, the auction servermust then broadcast market feedback to the other participatingsuppliers. This broadcast function creates a real-time onlinecompetition between suppliers who are able to view the activities oftheir competitors and plan their corresponding response strategy.

In the coal market, the specific factors used in the transformationfunction are often confidential to the buyer. Accordingly, the buyerdesires to prevent the suppliers from gaining insight into aspects ofthe transformation function that quantifies the buyer's weighting ofvarious parameters associated with a supplier's bid. For this reason,the auction server does not feedback the transformed bids to theparticipating suppliers. Rather, the auction server broadcasts bids thathave been detransformed from the buyer comparative bid parameter (i.e.,¢/Million BTU) into the context (i.e., $/ton) of the individualsuppliers.

The $/ton bid for a supplier is referred to as the supplier comparativebid parameter. As illustrated in FIG. 4, the supplier comparative bidparameter is one of the inputs into the transformation function (f). Thesupplier comparative bid parameter is significant because it enables thesupplier to view the auction competition in his own context. In otherwords, a supplier can view all competing bids as if all suppliers wereoffering the same type of coal for sale. In this manner, a supplier canview the competitive auction landscape without receiving any informationconcerning the transformation function that has been defined by thebuyer.

In the coal example, the transformation process is modeled as a linearfunction, having at least one multiplicative factor and/or at least oneadditive factor. This transformation can be represented by the wellknown algebraic function y=mx+b, where m is the multiplicative factor, bis the additive factor, x is the supplier comparative bid parameter, andy is the buyer comparative bid parameter.

Bids viewed in the buyer's context have been converted into the buyercomparative bid parameter (i.e., ¢/Million BTU). On the supplier side,each of the bids submitted from other participating suppliers aredetransformed from the buyer comparative bid parameter into the suppliercomparative bid parameter. This detransformation is accomplished bysolving the formula for x to yield the formula x=(y−b)/m. In thisdetransformation process, ¢/Million BTU bid values that are to bebroadcast to Supplier A are converted to $/ton bid values using themultiplicative and/or additive factors for Supplier A.

After the client component at Supplier A receives the detransformed bidvalues, Supplier A is then able to view a relative comparison of thebids in his own context. This relative comparison corresponds to therelative comparison of the bids in the buyer context. FIG. 6Billustrates a bid history chart in the context of Supplier A. In thisexample, it is assumed that Supplier A's multiplicative and additivefactors are, m=0.87 and b=80, respectively.

As FIG. 5B demonstrates, Supplier A can view the competitive climate ofthe auction without having access to any of the details of thetransformation function (f) implemented by the buyer. From Supplier A'sperspective, all other suppliers are bidding the same type of coal.Competition is therefore perceived as being based on the $/ton price,not the ¢/Million BTU price. If Supplier A decides to beat the marketleading bid, Supplier A would simply reduce his $/ton bid and submit thenew bid (e.g., bid of $17.01/ton bid at 01:25:28) to the auction server.The new $17.01/ton bid would then be transformed into a 94.8 ¢/MillionBTU bid, i.e., 0.87*17.01+80=94.8 ¢/Million BTU, using themultiplicative and additive adjustments for Supplier A.

In a similar manner, Supplier B can also view the competitive climate ofthe auction without having access to any of the details of thetransformation function implemented by the buyer. Supplier B's view isillustrated in FIG. 5C. In this example, it is assumed that Supplier B'smultiplicative and additive factors are, m=0.81 and b=82, respectively.In Supplier B's view, Supplier A's new bid of $17.01/ton (or 94.8¢/Million BTU) at 01:25:28 is fed back to Supplier B as a $15.80/tonbid, i.e., (94.8−82)/0.81=$15.80/ton, using Supplier B's multiplicativeand additive parameters.

In combination, FIGS. 5A-5C illustrate a feature of the presentinvention that enables each supplier to view the auction in his owncontext. These buyer-specific and supplier-specific contexts enable thesystem to create a coal auction market without revealing confidentialinformation to the suppliers. The creation of an online electronicauction greatly benefits the buyer by allowing the buyer to get truemarket prices. The online electronic auction can easily produce hundredsof bids in a span of a few hours. This is in sharp contrast totraditional coal market mechanisms that relied upon the simultaneousoccurrence of independent negotiations over a course of weeks.

It should be noted that a supplier may simultaneously offer a pluralityof products of differing technical specifications. In this case, thetransformation function must treat these offerings separately. Eachoffering has its own context, and an array of detransformed bid valuesunique to that offering.

It should be noted that a supplier could also modify a bid by changing anon-price parameter. For example, instead of changing the $/ton bid, asupplier could choose to change a particular characteristic (e.g., %ash, % sulfur, etc.) of the coal that is being bid. This new type ofcoal can be based upon a mixture or blend of different types of coalwithin the supplier's control. By adjusting the characteristics of thecoal, the supplier is effectively adjusting the multiplicative factorand/or additive factor that defines his transformation function. Forthis reason, the new blend of coal would define a new context for thatsupplier. The supplier would then have the option of amending anexisting offering or creating a second offering. If the supplier createsa new offering, viewing that new blended bid within the context of theauction market would require a second bid history chart. In effect, thesupplier has entered two horses into the race. This has the additionalbenefit to suppliers of allowing them to balance their own supply withmarket demand in the most beneficial manner.

Another example of transformation bidding is multi-currency bidding.Multi-currency bidding is an auction format wherein the buyer views allsubmitted-bids in a base currency (e.g., U.S. dollars), while each ofthe suppliers view all submitted bids in a local currency (e.g.,Japanese Yen, Swiss Francs, etc.). Multi-currency bidding is describedin co-pending U.S. application Ser. No. 09/282,158, entitled “Method andSystem for Conducting Electronic Auctions with Multi-Currency Bidding,”,the disclosure of which is hereby expressly incorporated in the presentapplication.

In the multi-currency bidding example, the local currency represents asupplier comparative bid parameter. The exchange rate between the localcurrency and the base currency represents a non-comparative bidparameter. It should be noted that in the multi-currency example, thenon-comparative bid parameter is provided by the buyer or independentparty instead of the supplier. In effect, the supplier's bid is a singleparameter (i.e., local currency price) to be transformed into a buyercomparative bid parameter (i.e., base currency price).

In a similar fashion as the coal market example, each of the supplierscan view the auction in their own context (or local currency). Here,confidentiality of the transformation process is not the driver forseparate supplier views. Rather, separate supplier views are desiredbecause of user unfamiliarity of viewing prices in a foreign currency.Detransformation is represented by the conversion of base currency bidsinto the relevant local currency.

In the multi-currency bidding application, the exchange rates are notconfidential. Accordingly, the transformation/detransformation processcan be performed at the client component and/or the auction servercomponent. For example, assume that Supplier A is bidding in JapaneseYen, Supplier B is bidding in Swiss Francs, and the buyer is viewing theauction in U.S. dollars. The client component of Supplier A can submitthe bid in Yen or in U.S. dollars. If the bid is to be submitted in U.S.dollars, the client component is configured to convert the bid todollars prior to submission to the auction server.

On the receiving end, the client component of Supplier B can receive abid price submitted by Supplier A in Yen, U.S. dollars or Swiss Francs.If the auction server sends a bid submitted by Supplier A in yen toSupplier B. the auction server is performing the detransformationprocess (i.e., currency exchange to Yen). In this case, no currencyconversion is required by the client component of Supplier B.Alternatively, the client component of Supplier B can be configured toperform the currency exchange of Supplier A's bid. This currencyexchange can be based upon the receipt of a bid in the base currency(U.S. dollars) or Supplier A's local currency (Yen). In this case, thecurrency conversion is performed by the client component of Supplier Bprior to the display of Supplier A's bid to Supplier B.

In other embodiments, multi-parameter price equalization bidding can beused to solve other problems when price alone cannot adequatelydiscriminate between a plurality of offerings. One example concernstransportation costs. Because buyers often control inboundtransportation and have favorable contract rates, the transformationfunction might be configured to translate bids of FOB supplier pricinginto bids of FOB buyer. Another example concerns penalty factors buyersmight apply. Some suppliers may be assessed penalties due to additionalcost factors the buyer might have to assume. For example, an overseassupplier might be automatically penalized a given percent or fixedamount to cover the extra costs of travel, input/export duties, andinternational banking fees.

In other embodiments, the transformation function that converts thesupplier comparative bid parameter into buyer comparative bid parametersmight be non-linear. This non-linear transformation may be implementedin a variety of ways. In one embodiment, the algebraic transformationfunction (f) is defined as a non-linear function rather than a linearfunction. The form of this function might be a polynomial such asy=nx²+mx+b. It might also use logarithms or power functions.

In another embodiment, the transformation function (f) uses lookuptables. A lookup table is a form of transformation function whereby agiven input value or range of input values is translated into a givenoutput value. The lookup table is constructed in advance in such a waythat all possible values of input are translated into an acceptablevalue of output.

Non-linear transformation functions can serve to provide additionalemphasis to certain parameters. For example, a product's value may riseat a faster rate as a certain quality factor approaches perfection. Thevalue of a perfect diamond, for example, can be many times higher thanthe value of a slightly imperfect diamond. However, as the level ofimperfection rises, the drop off in value slows. This is a non-lineartransformation from an engineering attribute into value.

Lookup tables can be used to simplify preparation. For example, considerthe problem of translating FOB supplier prices into FOB buyer prices,including transportation costs between a supplier and a buyer. Intheory, a linear transportation function might be used to apply anadditive factor such as “cents per unit per mile shipped.” In practice,it can be far simpler to prepare an auction using a rule such as “within100 miles shipping is $0.01 per unit, between 101-250 miles shipping is$0.03 per unit, and above 250 miles shipping is $0.05 per unit.” In thiscase, a lookup table provides an easier implementation. In thisframework, supplier A located 60 miles from the buyer would be assessed$0.01 per unit for shipping, while supplier B located 105 miles from thebuyer and supplier C located 230 miles away would both be assessed $0.03per unit.

It should be noted that a combination of linear, non-linear, and lookuptable transformations might apply to any given auction. For example, alinear transformation function might be used, where various additivetransformation factors are themselves the output values from a lookuptable, another linear function, or a non-linear function. In otherwords, the transformation functions may be nested to include more thanone type of calculation in any given embodiment.

Generally, where the transformation function is non-confidential, thetransformation process can be implemented individually or jointly by theauction server component and the individual client components. The jointimplementation can be designed in various ways to achieve the same goal,the support of individual buyer and supplier views.

As noted above, the transformation process can also be used in a contextwhere only a single view of the auction is available. Here, the buyerand each of the participating suppliers each view the auction based onthe buyer comparative bid parameter (e.g., NPV bidding).

Yet another embodiment of transformational bidding includes rebates anddiscounts. In addition to the bid parameters described above, rebatesand/or discounts may be included and operated upon by the transformationfunction (f) to yield the buyer comparative bid parameter value.

FIG. 6 illustrates a block flow diagram of a transformation includingrebates and discounts in accordance with one embodiment of theinvention. This preferred embodiment of the invention applies thetransformation function described with respect to FIGS. 1-5 above withrebates and discounts. Although FIG. 6 and other figures presentedherein may include a particular sequence of steps, it can be appreciatedthat the sequence of steps merely provides an example of how the generalfunctionality described herein can be implemented. Further, eachsequence of steps does not have to be executed in the order presentedunless otherwise indicated.

As shown in FIG. 6, a first bid having a first value and a first unit ofmeasurement is received at step 702. A second bid having a second valueand a second unit of measurement is received at step 702 as well. Atstep 704, the first and second values are transformed to third andfourth values, respectively, having a standard unit of measurement. Forexample, a standard unit of measurement might be a NPV for each of thetotal leasing costs and total buy costs, as described in more detail inthe '156 application.

Before receiving the first bid and second bid, the auction coordinator20 may solicit potential bidders 30, as shown in FIG. 1A. In oneembodiment, the auction coordinator 20 prepares a request for quotation,provides the request for quotation to potential bidders 30, and requeststhe potential bidders 30 to respond to the request for quotation. Therequest preferably identifies of the goods or services to be purchased.

In another embodiment of the invention, the first and second values aretransformed by determining a first transformation factor for the firstvalue, and a second transformation factor for the second value. Thefirst value is transformed using the first transformation factor, andthe second value is transformed using the second transformation factor.In particular, the first value and the second value are transformed viaa linear transformation for each value, with the linear transform havinga multiplicative adjustment or an additive adjustment. For example, thefirst value and second value may be transformed by multiplying the firstvalue by the first transformation factor and the second value by thesecond transformation factor.

The first and second transformation factors may be determined using anynumber of methods. For example, one method for determining the first andsecond transformation factors comprises storing the first and secondtransformation factors in a look-up table using computer memory,searching the look-up table for the first and second transformationfactors, and retrieving the first and second transformation factors inaccordance with the search.

In this method, the transformation factors for each type of bid arecalculated before the start time for a particular lot in an electronicauction. The transformation factors are stored in computer-readablememory in the form of a look-up table. Whenever a bid is received, thesystem searches the look-up table for the appropriate transformationfactor and retrieves the transformation factor from memory. This methodavoids the necessity of calculating a transformation factor for each bidduring the relatively short time interval that an electronic auction isopen. This also reduces the processing requirements and thereforecomplexity of the overall system.

Another method for determining the first transformation factor includesidentifying a first set of transformation variables for the first value,specifying a first transformation function to derive the standard unitof measurement using the first value and the first set of transformationvariables, receiving a value for each of the first set of transformationvariables, and calculating the first transformation factor using thereceived values and the first transformation function. This methodpermits a transformation factor to be calculated as each bid isreceived. This may be desirable if the values for the transformationvariables, or the transformation variable themselves, are dynamic innature. In this case a static transformation factor may not beappropriate depending on the level of accuracy required for a particularbidding event. In one embodiment, the first and second bidders areelectronically coupled to an auction coordinator during the auction andthe first and second bids are submitted to the auction coordinatoronline during the auction.

Similarly, a method for determining the second transformation factorincludes identifying a second set of transformation variables for thesecond value, specifying a second transformation function to derive thestandard unit of measurement using the second value and the second setof transformation variables, receiving a value for each of the secondset of transformation variables, and calculating the secondtransformation factor using the received values and the secondtransformation function.

It is worthy to note that any number or type of transformation variablescan be used for a desired transformation function and still fall withinthe scope of the invention. Additional bids with additional values mayalso be converted to the standard unit of measurement. Furthermore, thetransformation functions described with respect to FIG. 6 may beimplemented using the generic transformation 500 described with respectto FIG. 4.

In one embodiment of the invention, the standard unit of measurement isa buyer comparative bid parameter. In particular, the buyer comparativebid parameter represents a net present value.

Once the different bids are normalized using a standard unit ofmeasurement, the third and fourth values are compared. The third valueis then ranked with respect to the fourth value in accordance with thecomparison. This relative ranking is then displayed to the buyer.

In one example of transformational bidding with rebates and discounts,business discounts are factored into bids in an auction for accessories.Often, a single most competitive, high quality supplier is desired, sothe discounts may have a significant impact on the award decision. Thediscount may include a fixed percentage price reduction, such as 20%,for the accessories after a 250^(th) production unit for a total of 7000units. In the initial RFQ, the maximum bid value may be increased byapproximately 29% to account for this price reduction so that the 20%discount is properly factored into the bids. If a ten-year contractperiod is used as a normalizing period of time, the resultingtransformational bidding equation is:

A=B−C/D

Where:

A=Transformed Bid

B=Entered Bid

C=Total Cumulative Savings for ten-year contract period, such as between2001 and 2010 inclusive.

D=5798=[250*1.0+(7185−250)*0.8], where 7185 is equal to the TotalForecast Volume between 2001 and 2010 and the 20% price discount isaccounted for after the 250^(th) unit.

Not only is it important for the buyer to have bids with different unitsof measure transformed to a standard or uniform unit of measure, it isimportant for the sellers (i.e., bidders) to understand where their bidstands in relation to the other sellers. This need, however, must bebalanced against the need of the buyer to keep certain information fromthe sellers to ensure a particular seller does not have a biddingadvantage. Therefore, one embodiment of the invention allows for bidshaving a different unit of measure than used by one particular bidder tobe converted to a unit of measure used by that particular bidder. Usingthe above methods, assume the first bid is from a first bidder and thesecond bid is from a second bidder. The third value (e.g., representingthe transformed first value submitted by the first bidder) isdetransformed to a fifth value having the second unit of measurement.Similarly, the fourth value (e.g., representing the transformed secondvalue submitted by the second bidder) is detransformed to a sixth valuehaving the first unit of measurement. The fifth value is then sent, ortransmitted, to the second bidder so that the second bidder can knowwhere their bid ranks with respect to other bids, even if the other bidsuse a different unit of measurement. The sixth value is sent to thefirst bidder for the same reasons. In other words, the bids from otherbidders using a different unit of measurement are converted to the unitof measurement used by a particular bidder so that the particular bidderis made aware of where its bid ranks in comparison to the other bids.The detransformation process may be implemented using transformation 800and its appropriate mathematical and functional variations, as well asthe process described with respect to FIGS. 5A-5C.

The embodiments of the invention may be implemented by a processor-basedcomputer system. The system includes a database for receiving andstoring bid information, including rebates and discounts, from at leastone bidder, and software for transforming bid information into valueshaving the standard unit of measurement. The system also preferablyincludes a database for storing the lookup table of transformationfactors that convert the bid information into the values having thestandard unit of measurement.

With reference to FIG. 3, a computer system 20 operates to execute thefunctionality for server component 23. Computer system 20 includes aprocessor 21, a memory 22A and a disk storage 22B. Memory 22A storescomputer program instructions and data. Processor 21 executes theprogram instructions or software, and processes the data, stored inmemory 22A. Disk storage 22B stores data to be transferred to and frommemory 22A. All these elements are interconnected by one or more buses,which allows data to be intercommunicated between the elements.

Processor 21 can be any type of processor capable of providing the speedand functionality required by the embodiments of the invention. Forexample, processor 21 could be a processor from a family of processorsmade by Intel Corporation or Motorola.

For purposes of this application, memory 22A and disk 22B are machinereadable mediums and could include any medium capable of storinginstructions adapted to be executed by a processor. Some examples ofsuch media include, but are not limited to, read-only memory (ROM),random-access memory (RAM), programmable ROM, erasable programmable ROM,electronically erasable programmable ROM, dynamic RAM, magnetic disk(e.g., floppy disk and hard drive), optical disk (e.g., CD-ROM), opticalfiber, electrical signals, lightwave signals, radio-frequency (RF)signals and any other device or signal that can store digitalinformation. In one embodiment, the instructions are stored on themedium in a compressed and/or encrypted format. As used herein, thephrase “adapted to be executed by a processor” is meant to encompassinstructions stored in a compressed and/or encrypted format, as well asinstructions that have to be compiled or installed by an installerbefore being executed by the processor. Further, system 20 may containvarious combinations of machine readable storage devices, which areaccessible by processor 21 and which are capable of storing acombination of computer program instructions and data.

Memory 22A is accessible by processor 21 over a bus and includes anoperating system, a program partition and a data partition. The programpartition stores and allows execution by processor 21 of programinstructions that implement the functions of each respective systemdescribed herein. The data partition is accessible by processor 21 andstores data used during the execution of program instructions. For someembodiments of the invention, the program partition contains programinstructions that performs the buy versus leasing transformationfunctionality described above.

Computer system 20 also includes a network interface 28. Networkinterface 28 may be any suitable means for controlling communicationsignals between network devices using a desired set of communicationsprotocols, services and operating procedures. Communication protocolsare layered, which is also referred to as a protocol stack, asrepresented by operating system 24, a CBE-communication layer 26, and aTransport Control Protocol/Internet Protocol (TCP/IP) layer 27. Networkinterface 28 also includes connectors for connecting interface 28 with asuitable communications medium. Those skilled in the art will understandthat network interface 28 may receive communication signals over anysuitable medium such as twisted-pair wire, co-axial cable, fiber optics,radio-frequencies, and so forth.

FIG. 3 also shows a computer system 15 that operates to execute thefunctionality for client component 16. Computer system 15 includes aprocessor 31, a memory 32A, disk storage 32B, a communications interface38, and a protocol stack having a CBE-communication layer 37 and aTCP/IP layer 35. These elements operate in a manner similar to thecorresponding elements for computer system 20.

Another embodiment of the present invention includes a first machinereadable code that receives bid information from a bidder, a secondmachine readable code that receives at least one of a rebate anddiscount from the bidder, a third machine readable code that generates atransformed bid using the bid information and the at least one of therebate and discount, and a fourth readable code that transmits thetransformed bid information to an auction server to generate a relativecomparison of bids on a common competitive basis.

It should be noted that the mechanism for transformational bidding withrebates and discounts described above may also be applied totransformational bidding with agent's commissions and/or finder's fees.In this case, agent's commissions or finder's fees for finding asupplier would be applied to the transformed bids from suppliersprovided by the agent or finder. The mechanism described for rebates anddiscounts would apply, but instead of reducing costs in the transformedbid to account for the rebates and discounts, costs would be added tothe transformed bid.

While the invention has been described in detail and with reference tospecific embodiments thereof, it will be apparent to one skilled in theart that various changes and modifications can be made therein withoutdeparting from the spirit and scope thereof For example, while theauction functions described above have been described in the context ofdownward pricing (reverse) auctions, the auction functions can beequally applied to upward pricing (forward) auctions. Thus, it isintended that the present invention covers the modifications andvariations of this invention provided they come within the scope of theappended claims and their equivalents.

1-25. (canceled)
 26. A method of transforming bids comprising: receivinga first bid from a first bidder and a second bid from a second bidder,wherein at least one of a rebate and discount is offered with at leastone of the first and second bids; assigning a first value and a firstunit of measurement for the first bid and a second value and second unitof measurement for the second bid using in part the at least one of arebate and a discount offered; and transforming the first and secondvalues to third and fourth values, respectively, having a standard unitof measurement.
 27. The method of claim 26 wherein the transformingcomprises: determining a first transformation factor for the firstvalue; determining a second transformation factor for the second value;and converting the first value using the first transformation factor andthe second value using the second transformation factor.
 28. The methodof claim 26 wherein the transforming comprises: performing a lineartransformation for the first and second values having at least one of amultiplicative adjustment and an additive adjustment.
 29. The method ofclaim 27 wherein the transforming comprises: multiplying the first valueby the first transformation factor and the second value by the secondtransformation factor.
 30. The method of claim 27 wherein thedetermining comprises: searching on a look-up table for the first andsecond transformation factors; and retrieving the first and secondtransformation factors in accordance with the search.
 31. The method ofclaim 27 wherein the determining comprises: identifying a first set oftransformation variables for the first value and a second set oftransformation variables for the second value; specifying a firsttransformation function to derive the standard unit of measurement usingthe first value and the first set of transformation variables and asecond transformation function to derive the standard unit ofmeasurement using the second value and the second set of transformationvariables; receiving a value for each of the first set of transformationvariables and the second set of transformation variables; andcalculating the first transformation factor using the received valuesand the first transformation function and the second transformationfactor using the received values and the second transformation function.32. The method of claim 26 further comprising: receiving at least oneadditional bid having an additional value from at least one additionalbidder; and transforming the additional value to a converted valuehaving the standard unit of measurement.
 33. The method of claim 26further comprising conducting the auction as a reverse auction.
 34. Themethod of claim 26 further comprising conducting the auction as aforward auction.
 35. The method of claim 26 further comprisingsoliciting potential bidders.
 36. The method of claim 35 wherein thesoliciting comprises: preparing a request for quotation; providing therequest for quotation to potential bidders; and requesting the potentialbidders to respond to the request for quotation.
 37. The method of claim36 wherein the requesting comprises identifying goods to be purchased.38. The method of claim 37 wherein the requesting comprises identifyingservices to be purchased.
 39. The method of claim 26 wherein thetransforming comprises determining the standard unit of measurementaccording to a buyer comparative bid parameter.
 40. The method of claim26 further comprising: detransforming the third value to a fifth valuehaving the second unit of measurement; detransforming the fourth valueto a sixth value having the first unit of measurement; and transmittingthe fifth value to the second bidder and the sixth value to the firstbidder.
 41. The method of claim 26 further comprising: comparing thethird and fourth values; and ranking the third value with respect to thefourth value.
 42. The method of claim 41 further comprising displayingthe ranking to a buyer.
 43. A system for transforming bids, comprising:a processor configured to: receive a first bid from a first bidder and asecond bid from a second bidder, wherein at least one of a rebate anddiscount is offered with at least one of the first and second bids;assign a first value and a first unit of measurement for the first bidand a second value and second unit of measurement for the second bidusing in part the at least one of a rebate and a discount offered; andtransform the first and second values to third and fourth values,respectively, having a standard unit of measurement; and a memorycoupled to the processor and configured to provide the processor withinstructions.
 44. The system of claim 43 wherein the transformingcomprises: determining a first transformation factor for the firstvalue; determining a second transformation factor for the second value;and converting the first value using the first transformation factor andthe second value using the second transformation factor.
 45. The systemof claim 43 wherein the transforming comprises: performing a lineartransformation for the first and second values having at least one of amultiplicative adjustment and an additive adjustment.
 46. The system ofclaim 45 wherein the transforming comprises: multiplying the first valueby the first transformation factor and the second value by the secondtransformation factor.
 47. The system of claim 45 wherein thedetermining comprises: searching on a look-up table for the first andsecond transformation factors; and retrieving the first and secondtransformation factors in accordance with the search.
 48. The system ofclaim 45 wherein the determining comprises: identifying a first set oftransformation variables for the first value and a second set oftransformation variables for the second value; specifying a firsttransformation function to derive the standard unit of measurement usingthe first value and the first set of transformation variables and asecond transformation function to derive the standard unit ofmeasurement using the second value and the second set of transformationvariables; receiving a value for each of the first set of transformationvariables and the second set of transformation variables; andcalculating the first transformation factor using the received valuesand the first transformation function and the second transformationfactor using the received values and the second transformation function.49. The system of claim 43 further comprising: receiving at least oneadditional bid having an additional value from at least one additionalbidder; and transforming the additional value to a converted valuehaving the standard unit of measurement.
 50. A computer program productfor transforming bids, the computer program product being embodied in acomputer readable medium and comprising computer instructions for:receiving a first bid from a first bidder and a second bid from a secondbidder, wherein at least one of a rebate and discount is offered with atleast one of the first and second bids; assigning a first value and afirst unit of measurement for the first bid and a second value andsecond unit of measurement for the second bid using in part the at leastone of a rebate and a discount offered; and transforming the first andsecond values to third and fourth values, respectively, having astandard unit of measurement.